Small businesses face a new kind of credit crunch, says new research

Global 8 Oct 2013

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SMEs are likely to feel that they are lagging behind the rest of a recovering economy. They can see the recovery happening and even have confidence in it, but on their street and in their business it has yet to reach them. Now is the time for SMEs to prioritise investment and seek internationally focused market growth, as they prepare for a more stable economy.”

—Rosana Mirkovic, head of SME policy,ACCA

SMEs seeking shelter in niche markets

The economic recovery is causing a new kind of credit crunch for the world’s small and medium-sized businesses as they struggle to find the finance needed to deliver on new business and orders, according to new findings from ACCA (the Association of Chartered Certified Accountants) and the Institute of Management Accountants (IMA) in their Global Economic Conditions Survey (GECS) analysis.

GECS, the largest quarterly economic survey of accountants in the world, gauges the views of ACCA and IMA finance professionals working at the coal face of businesses. ACCA and IMA looked at the GECS quarterly survey figures from quarter four 2011 to quarter two 2013 to assess how the world’s SME businesses were managing the changing economic conditions.

Rosana Mirkovic, ACCA head of SME policy, said: 'The combination of the return to growth and continued problems in accessing finance has squeezed SMEs’ cashflow.

'This period of recovery is a delicate time for SMEs – rising orders are increasing the amount of working capital to be financed, whilst SMEs find it hard to finance growth due to a lack of liquidity. The knock-on effect of this is that SMEs increasingly draw on each other via trade credit and late payment and our surveys confirm this, as we see SMEs’ reporting of late payment concerns increasing in-line with the increase in economic confidence.

'This represents a new kind of credit crunch for SMEs where the opportunities are there but the finance needed to deliver on them is not.'

The issue of securing prompt payment from customers has increased significantly for small and micro enterprises since late 2011, when 33% cited it as a business outcome compared to 48% in the first half of 2013, according to the GECS surveys.

The quarterly surveys also revealed that the size of a business dictated what type of economic recovery measures they took.

Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research, said: 'An interesting trend emerged over the 21 month period we looked at and that was SMEs took shelter from competition during the recovery in niche markets. This was more common amongst SMEs, while the GECS data showed that mid-market firms responded by entering new markets whilst large corporates were more likely to pursue innovation.

'The smallest businesses, particularly in the US and UK, took the niche market approach. It makes sense, as they are less likely to have the capacity to enter new markets of throw money they don’t have at innovation.'

Finance professionals working in SMEs reported an upturn in confidence in the global economic recovery from September 2012. Overall, the strongest upturn was seen in the US, especially among US mid-market companies. However, that confidence in the global recovery was not reflected by the world’s smallest companies when it came to their own business prospects.

Rosana Mirkovic said: 'SMEs are likely to feel that they are lagging behind the rest of a recovering economy. They can see the recovery happening and even have confidence in it, but on their street and in their business it has yet to reach them. Now is the time for SMEs to prioritise investment and seek internationally focused market growth, as they prepare for a more stable economy.'

SMEs globally continued to face a tough environment with substantial pressure on profit margins; 89% of SMEs were under pressure from economic conditions on the ground, with tightening profit margins emerging as a major issue. This was prevalent in emerging markets, where demand remained weak and inflation pressures intensified.

Despite these pressures, small and medium businesses were less likely than larger ones to have responded to economic pressures with a loss of business capacity, holding back on staff cutbacks and capital investment.

Read the full report, Surviving the recession and the recovery: the SME story via the 'Related Links' section, left of this article.